The Federal Housing Finance Agency (FHFA), the new oversight body of Fannie Mae and Freddie Mac, has been noticeably quiet about the Home Valuation Code of Conduct. FHFA director, James Lockhart, was recently questioned by a House committee about the code and was woefully unprepared. Both Rep. Donald Manzullo (R-IL) and Rep. Gary Miller (R-CA) both asked questions on the HVCC [Watch the video here….segment starts about : 2:52:30]

According to Representative Manzullo, Mr. Lockhart’s inability to answer questions shows that “your organization knows nothing about real estate closings.” Mr. Lockhart repeatedly refers to the HVCC as a regulation, which it is not since it did not pass through ANY regulatory body; it is an agreement between FHFA and Andrew Cuomo. In response to questions from Rep Miller, Lockhart states that HVCC has “added a little extra friction in the system.”

After pressure was exerted by many professional trade organizations in the real estate industry, the largest of which is National Association of REALTORS ® (NAR), FHFA was compelled to send out an “Update on Enterprise Implementation of the Home Valuation Code of Conduct” on July 22, 2009. [link to it here]. This “notice,” again, shows that FHFA is out of touch with reality.

According to the notice, “The Home Valuation Code of Conduct (Code) announced by Fannie Mae and Freddie Mac (Enterprises) in December 2008 was developed after a long period of public input.” After first announcing that there would be 90 days to comment on the proposed new rule, OFHEO (the previous version of FHFA) reduced the time period to 45 days. According to the Administrative Procedures Act (or “APA”), which requires specific procedures for commentary and public involvement when rules are set forth by federal agencies. Because Fannie and Freddie were still privately held companies, they claimed exemption to this Act. When taken to court by the National Association of Mortgage Brokers (NAMB) over this issue, they now claim immunity to lawsuits as they are a government agency.

According to the notice, “the Code does not lead to lower appraisals for property… appraisal guides require appraisers to have knowledge of the local market” Anecdotal evidence continues to pour in about poorly done appraisals because qualified appraiser are unwilling to work for the reduced fees created by HVCC. These poor reports are lowering values beyond normal market conditions.

According to the notice, “Closing costs have risen in some instances, but that has not been a function of the Code.” If FHFA reviewed settlement costs prior to HVCC they would see appraisal fees at $300.00-$400.00. They would now see the fees at $400+. This is a direct result of HVCC. NAMB estimates that HVCC is costing consumers over 2 billion dollars in increased fees. They received no contradiction when they presented that number to Andrew Cuomo’s office.

According to the notice, “the Code does not favor the use of AMCs over independent or in-house appraisers… lender use of AMCs was increasing prior to the Code.” Until the implementation, or in preparation to the implementation, I did not have one lender that required appraisals to be ordered through an AMC. While the Code my not require AMC’s, the reality is that they are dominating the market place and in many cases are owned by the bank requiring their use.

According to the notice, “appraisals are transferrable between lenders under the Code… Whether a lender decides to transfer or accept an appraisal, however, is up to the lender, and is not related to the Code.” In reality, appraisals are not portable. Lenders are afraid of financial implications of using another lender’s appraisal or releasing their report while maintaining liability due to the code. One large national lender has a written policy that it will only accept reports completed by its wholly owned, subsidiary AMC. Any borrower wishing to switch to this lender would likely have to have to bear the cost of another appraisal. This same lender also stipulates that it will only release its reports to other lenders if the borrower is declined or counter offered on the terms of the loan they requested. In other words, if that lender wants the loan, they will not release the report even though the consumer has paid for it.

The notice ends with “The poor practices of the past are being corrected and lessons learned are being addressed.” The lessons learned are costing consumers billions, putting small businesses out of business, and stifling legitimate growth in our communities.

HR 3044 was introduced in Congress to place an 18-month moratorium on HVCC. This would allow time for a more realistic approach to the appraisal fraud issue. FHFA is out of touch, we must push Congress to step in as the voice of reason. Call your representative today and ask that they add their name to the 30+ reps already co-sponsoring this bill. Send your stories of how this code is affecting your life and business to Director Lockhart at FHFA. Director@fhfa.gov .